Saturday, 5 November 2011

Instilling a sense of crisis – Crisis v Urgency in change management

Despite not
officially being part of any change management model, instilling, establishing
or creating a sense of crisis can be virtually considered as a primary component
of modern change management.

One of the most notable,
arguably the most notable, example of successful implementation of this ploy
dates back to the mid 1990s when Mr Kun-Hee Lee, chairman and son of the
Samsung Group founder, appointed Mr Jong-Yong Yun as the Group president and
CEO urging him to “change everything except his spouse and children” (Lewis,
2005).

Mr Yun’s task was indeed particularly tricky and
ambitious; notwithstanding, he was able to succeed beyond all expectations. His
recipe for success? As claimed by himself (Yun, 2003), driving change
encouraging a sense of crisis and instilling in the business management the conviction
that the company could be forced into bankruptcy any time soon.

In 1997, by reason
of the Asian economic downturn Samsung, as all of the other South-Korean organizations,
was deeply under pressure; so bleak was the general economic scenario at the
time as to require an IMF bailout. This was indeed a case of real financial crisis
when organizations were experiencing severe hardships and were literally struggling
to stay afloat.

Mr Yun, who might have initially hardly appeared
to be the ideal candidate to spearhead the particularly challenging and tricky process
of change entrusted to him by the Samsung chairman, showed very soon and contrary
to all expectations not only to be the most suitable person to perform the daunting
task, but also to have unrivalled business capabilities. The course of action
he implemented to enable the business to leave the danger zone it occupied
included the difficult and tough decisions to: dismiss 24,000 employees (a
third of the company’s overall workforce), sell $2 billion of non-core
businesses that were losing money, drastically reduce overheads, dismantle the
company rigid management structure and massively invest in technology, design
and human capital recruiting about 300 American MBA graduates and 700 PhD-level
engineers.

The economic crisis
was actually still there, but Mr Yun managed things so exceptionally well insofar
as to attain a spectacular success, not only from the financial point of view but
also in terms of the repositioning of the corporation in the electronics
market. Previously known as a cheap consumer electronics manufacturer, thanks
to Mr Yun Samsung was thus acknowledged and regarded as a global manufacturer
of high-end electronics products.

Instilling a sense
of crisis has been ever since regarded as a permanent tenet and pillar of
Samsung corporate culture, Mr Yun did not want the business managementto ever forget the lessons learned during the dreary
downturn which severely affected the organization during the mid-1990s; as he used to say(Yun, 2003): “We must not lose the sense of
crisis that helped us change.”

Differently from
many other executives, Mr Yun was well-aware of the circumstance that complacency
might have been widespread within the company and of the likely resistance which
would have been opposed by managers when pushed beyond their comfort zone. Mr
Yun’s credo, nonetheless, was basically underpinned by the certitude that the
corporation could have not rested on its laurels, but had rather to remain constantly
vigilant: “When
everything goes smoothly is the time when things go wrong” (Yun, 2003).

Creating a sense of perpetual crisis may indeed
prove to be detrimental for employees’ nerves, but Mr Yun applied this strategy
with extreme and careful consistency. His approach was not based on generating
and regenerating a sense of crisis whenever the corporation had to undergo a restructuring
or change process, but on relentlessly doing whatever it was considered
necessary to firmly embed this belief in the organization’s culture, trying thus
to develop and establish a culture of perpetual crisis (Fortune, 2005).

Amongst Mr Yun’s
statements one in particular appears to be extremely interesting and noteworthy.
Whereas many executives were fervently discussing the importance of the role
played by business strategy and its implementation for organizational success,
Mr Yun was supporting the idea that what actually makes a difference is not business
strategy, but rather organizational culture; insofar as claiming that the
success of Samsung was not due to its business strategy, but indeed to its corporate
culture (Fortune, 2005).

Mr Yun constantly
and actively spread a philosophy of imminent disaster within the organization with
the ultimate intent of fostering and creating a robust, broad, common cultural
ability to deal with crises (Fortune, 2005). He basically seemed to aim at
replacing the dictum “change is always with us” with the motto “crisis is
always with us.” Implemented in such a way, the sense of crisis rather than
causing high levels of stress and anxiety should contribute to make individuals
ready and used to crisis and to effectively deal with this. At the same time, it
is also particularly important to avert that the circumstance individuals get used
to crises might, also inadvertently, prompt these to belittle and weaken the
intensity of the efforts required to face these and cause employees to
underestimate the importance of the likely remarkable consequences produced by these
events. The fact individuals become acquainted with crises should not clearly lead
to these considering crises as less challenging, requiring low levels of
attention and let alone contributing to generate complacency amongst the
organization management.

A company cultural
ability to effectually cope and deal with crises may indeed enable this to gain
competitive edge vis-a-vis those which are not ready to face unexpected financial
disasters and downturn periods.

Whether the sense
of crisis should be perceived by individuals as whether these “are constantly
living besides a bomb which could explode anytime soon”, it is hardly
imaginable that employees may ever perform their duties properly and
effectively. In contrast, whether the business culture is underpinned by the idea
that “in the event of crisis we are ready and capable to promptly and
effectively cope with it and we know how to deal with it”, the attitude and
readiness to crisis may unquestionably prove to be an effective contributor to
organizational success and help employers to gain competitive edge over their
competitors.

Andy Groves, former
Intel CEO chairman, definitely represents and additional strong supporter of
the “instilling a sense of crisis” tactic as an effectual means to facilitate the
introduction of change. To this extent, he indeed regards as particularly significant
also a “healthy dose of paranoia” (Kandell, 2005).

The methods used to
instil a sense of crisis are basically the same as those which can be used to
create or establish a sense of urgency; the different result essentially
depends upon the extent, the degree and the gravity these entail. Having
recourse to the one or the other should sorely depend on the evaluation of the expected
effects which these are likely to produce on individuals.

A few examples of the
reasons which may be used by an employer to underpin the sense of crisis are:

- The possibility
that markets for cash cows may collapse overnight,

- Competitors might
bounce back,

- Chinese companies
will inevitably and aggressively take away the market (a strategy which Samsung
knows very well from its history),

- Product innovation
is the only remedy,

- Cutting cost and
complexity is needed to lead the innovation pace,

- It is necessary to
be the first in the market and to market (adapted from Fortune, 2005).

A few examples

3M Brazil

In 2007, 3M Brazil
decided to introduce a lean manufacturing approach in its factories. The change
process was mainly driven “by participative middle management support”; notwithstanding,
the desired objective was actually attained when the business CEO motivated
change creating a genuine sense of urgency.

The organization
had already planned to double inventory turns, but the need to attain that
result had emerged as even more important after the business CEO participation
at the Brazilian Lean Summit organized by the Lean Institute Brazil, during
which several companies revealed to record much better inventory turns
performances thanks to the introduction of the lean manufacturing or production
methodology (Calia and Barbeiro, 2007).

Enterprise Denmark

Enterprise has been
for a long time the only technical contractor of the Danish State Railway (DSB)
and the only operator of the national rail network (Bane Danmark). When the railway
industry was liberalised in Europe, the organization had to decide whether to
expand its activity abroad or continue to maintain its operations within the
Danish boundaries. The ambitious top management appointed in February 2007
decided to expand the company activities throughout the European territory; the
headquarters planned hence to become the main technical contractor in
Scandinavia by 2010 and in Europe later in 2015.

To implement the
change process necessary to pursue its strategy within the identified
timescale, the organization business leaders decided to adopt the Kotter’s
8-stage model, with the exception of the first stage, to wit: create urgency. The
entire workforce was actually aware that change was required and to some extent
employees were also prepared to change, but the dominating feeling was that change
should have occurred earlier and that it might possibly be too late to
introduce it. Establishing a sense of urgency was hence considered by the Enterprise
top executives as a pointless stage and arguably likely to produce
counterproductive effects. More in particular, managers were afraid that
urgency could have brought frustration, rather than motivation to change. The
organization management instead of establishing a sense of urgency decided thus
to inspire trust in the future, that is, we need change, we need it here and
now, and we are still in time.

The project is
still underway and, as usually happens in these cases, it has not been immune
from difficulties. From the Kotter’s point of view the project failed, albeit
deliberately, to establish a sense of urgency to which trust was preferred.
This choice, notwithstanding, seems to be in line with the employees’ shared reservations,
that is, “is this the right moment?”, rather than “is that really necessary”?

Reportedly, the change process has not derailed yet,
thanks to the careful attention which the organization management has paid to its
most important asset, that is to say its human capital (Petersen, Ballegaard
and Pedersen, 2008).

Pilkington
Australasia

In the early 1990s,
Pilkington Australasia, by reason of a harsh recession which had seen many of
its clients collapsing, had to implement a long process of change entailing a
series of important restructurings and mergers.

Real crisis
notwithstanding, the top management did not resort either to create a sense of
urgency or to establish a sense of crisis. This very soon proved to be a
massive blunder causing serious hardships during the merging procedures.

The sense of urgency was, in contrast, later established
by the new General Manager, HR, appointed in 1992. By means of a massive and
open communication programme, this was able to motivate change creating a vision
and setting the new direction; clearly, after having established the required
and genuine sense of urgency the circumstance actually required (Graetz, 2000).

Conclusions

Whereas the
effectiveness and usefulness of establishing or generating a sense of urgency
in change management can be taken as axiomatic, it still remains to determine whether
increasing the dose of the remedy “urgency” to the “crisis” level might
actually produce side effects or even lethal effects.

The cases of
successful implementation of change by generating a sense of urgency are indeed
copious and can be found also in the distant past. Nonetheless, a considerable
number of change processes have also been successfully implemented thanks to
the method of instilling a sense of crisis. The Samsung and Intel cases respectively
discussed and mentioned above are definitely emblematic of the effectiveness of
this approach. In practice, the two terms “crisis” and “urgency” are
interchangeably used as a matter of course, which makes it harder to find out what
is the real meaning that executives and business leaders attach to these terms
and consequently difficult to determine whether urgency has to be considered preferable
to crisis or otherwise.

In many instances
the sense of crisis diffused within the organization was actually supported by
the existence of a real crisis affecting not just the organization, but the
whole national economy, as for example in the cases of Samsung and Pilkington
Australasia. In these cases, where the genuine existence of a crisis is glaring
and palpable, the lack of the business senior executives’ initiative to instil a
sense of crisis might be even perceived as highly suspicious by employees.
Individuals are able to realize what is going on and under some circumstances
they could even call for change in order to secure their organization survival
and thus their job stability. In the case of Enterprise Denmark, for instance,
employee awareness of the need for change was so evident as to suggest the organization’s
management to inspire trust, rather than urgency.

The real problem as usually happens is not
concerned with the wording, albeit formally there is indeed a considerable
difference between the two terms, but with the mode the need for urgency or
crisis is communicated to the workforce and, most importantly, with how it is
perceived by individuals. Embedding in an organization corporate culture the
need for urgency or crisis and deprecating complacency can definitely enable
employers to effectually manage change whenever this is promptly required, but can
also considerably help these to support the regular, proper unfolding of the business
operations under any circumstances.